Green banks, clean-energy finance banks that operate as public-private financing institutions, are being touted as a life-line that will push the clean energy industry into maturity, according to OilPrice.com

This March 19, 2012 file photo shows a general view of a Aliade 150 wind turbine the largest in France erected in Le Carnet, western France. Some say green banks have the potential to boost America's clean energy industry.

David Vincent/AP/File

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As America’s clean energy industry takes up position in a no-man’s land between subsidies and sustainability, the idea of “Green Banks” is being touted as a life-line that will push the industry into maturity, but it’s an idea that will only work on a state level and by empowering states to make their own clean energy decisions.

Green Banks are essentially clean energy finance banks formed at the federal or state level that operate as public-private financing institutions with the power to raise capital to support clean energy projects through loans and loan guarantees. These banks can issue bonds and sell equity and they can often offer cheap loans.

In the US, it is the state level that would likely take the lead in forming Green Banks, and the state of Connecticut has already taken the plunge with the establishment of the Clean Energy Finance and Investment Authority (CEFIA). Launched last year, CEFIA merges several clean energy funds whose revenues come from a utility system benefit fund and the Regional Greenhouse Gas Initiative, among others, with a financing authority repurposed as a clean energy investment bank. Presently, CEFIA is talking with solar photovoltaic stakeholders to boost the bundle, and according to the Brookings Institute, is close to making its first loans. (RELATED: Will a Melting Arctic Help Postpone Peak Oil?)

In Germany and the United Kingdom, the idea of the Green Bank has also taken hold, with a clean energy development bank already boasting success in Germany, while the UK’s is only just getting off the ground. The UK’s version, however, is experiencing some setbacks in and a recession and deficit that is not falling as planned, the UK Green Investment Bank is behind on gaining borrowing powers.

State budgets are challenged financially, so Green State Banks would be a sound solution that would allow states to leverage public money with private sector funds and, importantly, private sector experience. The overall effect will be to cut clean energy’s dependence on federal subsidies and tax credits, which in turn will make them more competitive and hopefully push development into full maturity, all the while allowing states to make their own decisions. It is also much easier for states to forge public-private relations than it is for the federal government.

There is no single model that could work across states, however, so it is up to each state to design their own form of green banking. There are at least three models of banks that states could choose from depending on their specific circumstances and needs. The Connecticut model is a semi-public corporation that merges funds the state already has for clean energy with private investment in the bank. They could also take an existing infrastructure bank and add on a Green Bank to its services, or transform a grant authority into a lending authority in partnership with the private sector. (RELATED: What Does the Future Hold for Natural Gas Prices?)

More to the point: How will this affect the consumer? According to Bill Ritter, Director of the Center for the New Energy Economy (CNEE) at Colorado State University, consumer purchased energy resources “have never fit well without our existing utility model” because “utilities charge consumers for energy on a monthly basis, having financed their investments over time. Yet, when a consumer purchases efficiency or generation resources, traditionally they need to make a one-time, large up-front expenditure and then see their savings accrue over time through a reduction in their utility bill.”

Green Banks, he argues, would give consumers more and better options. Specifically, they would allow consumers to replace a portion of their monthly utility payment with a payment for energy efficiency or solar power and thus “protect themselves against rising utility bills and increase the value of their home or business while lowering their utility costs at the same time.”

The bottom line is that green banking is a good idea, as long as it remains the purview of state governments rather than the federal government. At a time when clean energy is under attack and only on the cusp of maturity, state green banks could be the first feasible plan out there, and it’s likely to be attractive to a host of governors. The idea will gain even more traction if Congress fails to extend the production tax credit (PTC) this year. Without green banking, the PTC is the only way the clean energy industry will survive. Green banking is a more viable alternative that extending the PTC.

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